UK housing market hits tipping point
Prices frozen or falling in most parts of Britain
Heather Stewart, economics editor
Sunday May 27, 2007
The Observer
Britain's property market is now at a turning point, according to research by property website Hometrack. It says house prices have stagnated or fallen in almost two-thirds of UK postcodes this month, as rising interest rates squeezed cash-strapped buyers out of the market.
In the latest evidence that higher borrowing costs are starting to bite, Hometrack's director of research, Richard Donnell, said prices rose in just 34 per cent of districts in May, and warned the property market was at a 'turning point'.
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'I think the impact of the rate rises, and the threat of more, means we're seeing more supply coming onto the market, and we're going to start to see the headline rate of price growth coming down in the rest of the year,' he said.
Martin Ellis, of the Halifax, said there had been indications that higher interest rates were taking a toll: 'We have seen a slowdown in the number of mortgages that have been approved, and fewer people registering as buyers,' he said.'
Mark Saddleton, group strategist at Nationwide, said the housing market was likely to show signs of slowing in the coming months. 'We are expecting affordability constraints to impact in the second half of the year,' he said.
Bank of England rate-setters have been taken aback by the strength of house prices, which have bounced back strongly since a slowdown in 2005.
The monetary policy committee has pushed up borrowing costs four times since August, to combat inflation. After the minutes of May's meeting revealed last week that the MPC contemplated a half-point rise, City investors are betting on at least one more increase, to 5.75 per cent, perhaps as soon as next month.
Ed Stansfield, of Capital Economics, said that with many borrowers on fixed-rate deals, it would take a long time for the full impact of higher rates to be felt; but predicted a 'transactions recession' over the next 12 months, with the number of successful sales falling, and 'limited or negligible' price rises.
News that interest rates are starting to hit house-buyers came as businesses warned the MPC against tightening rates too far. David Kern, economic adviser to the British Chambers of Commerce, said: 'Higher interest rates are already causing considerable pain. The MPC must curb the upsurge in inflation, but it must avoid monetary overkill that may cause long-term damage to business.'